TRAN Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport

EVIDENCE

CONTENTS

Thursday, December 5, 2002

Á

1110

The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.))

Mr. Joseph Randell (President and Chief Executive Officer, Air Canada Jazz)

Á

1115

The Chair

Mr. Joseph Randell

The Chair

Mr. Joseph Randell

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1120

The Chair

Mr. Joseph Randell

The Chair

Mr. Joseph Randell

The Chair

Mr. Joseph Randell

The Chair

Mr. Daryl Smith (Chief Executive Officer and Director, Pacific Coastal Airlines Limited)

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1125

Á

1130

The Chair

Mr. Daryl Smith

The Chair

Mr. Daryl Smith

The Chair

Mr. Daryl Smith

The Chair

Mr. Mark Hill (Vice-President Strategic Planning, WestJet Airlines)

Á

1135

The Chair

Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance)

Á

1140

Mr. Daryl Smith

Mr. James Moore

Mr. Daryl Smith

Mr. Mark Hill

Mr. James Moore

Mr. Mark Hill

Mr. James Moore

Mr. Mark Hill

Mr. James Moore

Mr. Joseph Randell

Mr. James Moore

Mr. Joseph Randell

Mr. James Moore

Mr. Joseph Randell

Mr. James Moore

Mr. Daryl Smith

Mr. Mark Hill

The Chair

Á

1145

Mr. Joseph Randell

Mr. Daryl Smith

Mr. Mark Hill

The Chair

Mr. James Moore

Mr. Daryl Smith

Mr. James Moore

Mr. Mark Hill

Mr. Joseph Randell

Mr. James Moore

Mr. Joseph Randell

The Chair

Mrs. Bev Desjarlais (Churchill, NDP)

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1150

Mr. Mark Hill

Mrs. Bev Desjarlais

Mr. Mark Hill

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Mark Hill

Á

1155

Mr. Joseph Randell

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Mark Hill

Mrs. Bev Desjarlais

Mr. Mark Hill

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

The Chair

Â

1200

Mr. James Moore

The Chair

Mr. James Moore

The Chair

Mr. James Moore

The Chair

Mr. James Moore

The Chair

Mrs. Bev Desjarlais

The Chair

Mrs. Bev Desjarlais

Mr. James Moore

Mrs. Bev Desjarlais

Mr. James Moore

The Chair

Mr. James Moore

The Chair

Mr. James Moore

Â

1205

The Vice-Chair (Mr. Marcel Proulx (Hull—Aylmer, Lib.))

The Vice-Chair (Mr. Marcel Proulx)

Mr. André Harvey (Chicoutimi—Le Fjord, Lib.)

Mr. Joseph Randell

Â

1210

Mr. André Harvey

Mr. Joseph Randell

Mr. André Harvey

Mr. Joseph Randell

Mr. André Harvey

Mr. Mark Hill

The Vice-Chair (Mr. Marcel Proulx)

Mr. Mark Hill

Â

1215

Mr. Joseph Randell

Mr. Mark Hill

The Vice-Chair (Mr. Marcel Proulx)

Mr. Daryl Smith

Mr. Mark Hill

Â

1220

Mr. Joseph Randell

The Vice-Chair (Mr. Marcel Proulx)

Mrs. Lynne Yelich (Blackstrap, Canadian Alliance)

Mr. Joseph Randell

Mrs. Lynne Yelich

Mr. Joseph Randell

Mrs. Lynne Yelich

Mr. Joseph Randell

Mrs. Lynne Yelich

Mr. Joseph Randell

Mrs. Lynne Yelich

Mr. Daryl Smith

Mrs. Lynne Yelich

Mr. Daryl Smith

Mrs. Lynne Yelich

Mr. Daryl Smith

Mrs. Lynne Yelich

Mr. Daryl Smith

The Vice-Chair (Mr. Marcel Proulx)

Mr. James Moore

Â

1225

Mr. Daryl Smith

Mr. Joseph Randell

Mr. Mark Hill

Mr. James Moore

The Vice-Chair (Mr. Marcel Proulx)

Mr. Roger Gallaway (Sarnia—Lambton, Lib.)

Mr. Joseph Randell

Mr. Mark Hill

Â

1230

Mr. Roger Gallaway

The Vice-Chair (Mr. Marcel Proulx)

Mr. Daryl Smith

Mr. Joseph Randell

Mr. Daryl Smith

The Vice-Chair (Mr. Marcel Proulx)

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

Mr. Daryl Smith

Mrs. Bev Desjarlais

The Vice-Chair (Mr. Marcel Proulx)

Mrs. Bev Desjarlais

Â

1235

The Vice-Chair (Mr. Marcel Proulx)

Mrs. Bev Desjarlais

The Vice-Chair (Mr. Marcel Proulx)

Mrs. Bev Desjarlais

The Vice-Chair (Mr. Marcel Proulx)

Mrs. Bev Desjarlais

The Vice-Chair (Mr. Marcel Proulx)

Mr. Mark Hill

The Vice-Chair (Mr. Marcel Proulx)

Mr. Daryl Smith

The Vice-Chair (Mr. Marcel Proulx)

Mr. Joseph Randell

Mr. James Moore

Mr. Joseph Randell

The Vice-Chair (Mr. Marcel Proulx)

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CANADA

Standing Committee on Transport

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NUMBER 005

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Thursday, December 5, 2002

[Recorded by Electronic Apparatus]

Á  (1110)  

[English]

    The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.)): Under Standing Order 108(2), the Standing Committee on Transport is studying the aviation security fees.

    Today we have as a witness Mr. Randell, Air Canada Jazz. Welcome, Mr. Randell.

    Mr. Leblanc of Jetsgo is not here yet. I was in an airport over the weekend where I saw Jetsgo. It's in the west, is it not?

    Mr. Smith is from Pacific Coastal Airlines.

    Do we have Mr. Hill from WestJet?

    Thank you.

    Gentlemen, the regular procedure is you have up to ten minutes to make your opening remarks. Each of you can do that, if you so wish. I want you to feel very comfortable in the submissions you're going to make.

    As you can well appreciate, there has been a lot of discussion since the imposition of the security tax. There has been a lot of discussion with respect to how it has affected air transport in Canada, especially with respect to the short hauls. Since the transport committee was struck only two weeks ago, or whenever it was, we realized that we have a short span before the Christmas break. We thought this was an important enough subject that we wanted to get it in and make a recommendation to the House of Commons.

    We were hoping to get the committee, after they hear all the evidence, to make some recommendations to the House. We realize that you're here before us on short notice. We want to listen to you very much on your interpretation and what effect it's having on your business.

    Have you chosen, between yourselves, how you want to handle this? Do you want to handle it individually? It may be the only time, gentlemen, that you get a chance to speak for the other airline. Okay.

    Mr. Randell.

    Mr. Joseph Randell (President and Chief Executive Officer, Air Canada Jazz): Thank you Mr. Chairman. Good morning, ladies and gentlemen.

    I'm Joe Randell. I'm the president and CEO of Air Canada Jazz. Thank you for this opportunity to present before the committee today.

    As you read in the papers every day, the airline industry is struggling to stabilize, and Jazz is certainly no different. Jazz, although a relatively new name in the market, is not new, in that it represents the former regional carriers of Air BC, Canadian Regional, Air Ontario, and Air Nova.

    We serve over 70 centres in Canada and the United States. Our headquarters are in Halifax. However, across the country we employ roughly 4,000 people. In terms of the number of flights, we're the largest airline in the country, with over 700 flights every day. Of course you see our Dash 8s, British Aerospace 146s, and Bombardier regional jets at airports across the nation.

    Our niche in the market is short haul and regional air travel. As such, we operate with generally lower load factors serving a lot of smaller communities that the larger airlines and the low-fare airlines do not serve. In fact, 85% of our routes are under 500 miles. So we're really in the short-haul business.

    As such, we have really felt very dramatically the impacts of September 11. It's thrown the short-haul business in particular in a real tailspin. If you look at what's happened in the U.S., short-haul travel under 250 miles is down roughly 30%. It's not unlike this in this country. We've had issues in the marketplace, and on top of that an environment of escalating costs and charges. On the short haul, we're finding our customers are actually either not travelling or using alternate modes of transportation.

    As an overview of what I'm talking about, I know the mandate of this committee is to look at the security charge, and without a doubt it's contributed to the dramatic drop in short-haul traffic. We believe air security is a national security issue. Why are air passengers singled out and asked to pay for the whole cost of air security, when for other modes and other aspects of public infrastructure these costs are not imposed on the customer but are paid through general government revenues or expenses? Why is the air transportation industry treated so differently? The $24 security charge is the highest in the world. The cost in the U.S. is less than half. Canadian travellers simply should not have to pay more than U.S. travellers.

    When we look at fees that passengers pay on top of their tickets, we also have airport improvement fees, or AIFs. I won't go into that in great detail, but for instance if you're travelling from London, Ontario, to Montreal via Toronto's Pearson Airport, you will have AIFs of $39 in total. When you add them all together, and then you have the $24 security charge, before the customer even pays for the ticket, the customer is committed to $63 and hasn't even phoned us to make a reservation.

    As if that isn't bad enough, we have as well the provinces adding to the taxation of air fares and these other charges in the province of Quebec, with sales tax, of course, and in Atlantic Canada with HST. So all of these are prices that are added on to the cost of the ticket to our customers.

    In recent years as well, Jazz has itself faced skyrocketing fees and charges, aside from those that are applied to the customers. Since 1997, our external costs have risen at an incredible rate. For instance, for Jazz our airport fees--what we pay for landing and terminal fees, building and property rents, police recovery fees and other ancillary costs--increased to about $83 million last year from just under $28 million, an increase of 148% since 1997. So that's in four years, a 148% increase, and that's on top of what our customers are paying for the add-ons on the tickets. And insurance costs have risen from $500,000 to $14 million annually, an increase of 2,700%. So the cost increase pressures have been significant.

Á  (1115)  

    Our navigational costs went from zero in the mid-1990s to an estimated range of close to $50 million this year. Even though the ATT was removed for passengers a few years ago, we have to be clear that these were new charges, which then had to be incurred by the carrier in the payment of services to Nav Canada.

    The bottom line is that the escalating surcharges and fees are forcing our customers to travel by surface modes of transportation in terms of flying. That's the unique part of our business. Customers clearly have a choice. We've been forced to abandon routes that have become non-viable, leaving communities in Canada, in some cases, without any air service.

    To give you an idea of the impact on our operation, I think it has probably been the most significant anywhere in the country in terms of the costs, charges, and decrease in traffic. Our short-haul traffic is down 30% when compared to last year. We reduced our capacity by 26%, over a quarter, in an effort to reduce the capacity to the decline in passenger traffic on short-haul routes. Even with that, we did not in fact cut enough capacity to match the decline in demand.

    Revenue levels in the third quarter were $28 million lower than last year. Our only recourse has been to reduce services, cancel routes, and reduce employee numbers. Since October 2001, Jazz has cancelled 12 routes, reduced service to several communities, and closed four airport bases in Canada, as well as our Saskatoon crew base.

    In January this year, at the end of the undertakings, we will be withdrawing completely from three more communities, cancelling another four routes, and closing three more bases. Last September we laid off 185 employees. We have recently announced that we have close to 400 additional surplus employees and have begun issuing lay-offs. At this time, as of the end of the year, we will effectively have 30% of our flight attendant group on lay-off. Our aircraft fleet has been reduced from 137 operating airplanes to only 91.

    We've not taken the service reductions lightly. We have endeavoured to stimulate passenger traffic through low-fare initiatives. We introduced web-based fares, for instance, last June. We expanded again last week. We offer an innovative program with discounts of up to 75% off regular fares for one-way travel booked through the web.

    We've also waived fuel and insurance surcharges. However, with the add-ons that we identified earlier, passengers are still finding alternate modes.

    We know that the current situation didn't develop overnight. We believe there are many solutions available. Everyone has taken its pound of flesh out of this business. At the end of the day, the customers and the people who are involved in this system are the losers. We are committed to working cooperatively with all stakeholders to find practical solutions. We are seeing a very serious decline in the quantity and quality of regional air transportation in this country.

    On top of this, we believe there must be a level playing field across transportation modes. A comprehensive transportation policy is needed for our nation to ensure that Canadians enjoy a full range of choice and service within a fair and competitive environment. The massive subsidization of VIA Rail is not acceptable considering the amount of money that has been taken out of the air industry in this country. I don't have time to go into it. It's another topic unto itself.

    The Chair: We'll call you back for that another day.

    Mr. Joseph Randell: Okay. Thank you.

    To sum up, recently ATAC submitted a paper with recommendations on this industry. I'm sure you're very familiar with it. We strongly endorse the paper. A lot of thought and effort was put into it. I have not even touched on a lot of the recommendations that are included there, due to time.

    The bottom line, moving back to the $24 security fee, is it's too high, we believe, in our end of the business. We're categorizing this $24 security fee as the straw that broke the camel's back. We need action with respect to the fee.

    Thank you.

    The Chair: To be able to put your submission into perspective, could you tell us how long Jazz has been operating?

    Mr. Joseph Randell: As individual carriers, the carriers go back to the 1930s and 1940s.

Á  (1120)  

    The Chair: Yes, but Jazz is a new name.

    Mr. Joseph Randell: As Jazz, we have been operating since March.

    The Chair: In what year?

    Mr. Joseph Randell: It was March of this year.

    The Chair: As a result, the figures that you've extrapolated come out of the Air Canada budget. Where do you arrive at your figures?

    Mr. Joseph Randell: The figures were from five carriers that came together to make up Jazz—Air BC, Canadian Regional Airlines, Air Ontario, Air Nova, and Air Alliance.

    The Chair: Thank you very much.

    Mr. Smith.

    Mr. Daryl Smith (Chief Executive Officer and Director, Pacific Coastal Airlines Limited): Thank you, Mr. Chairman.

    I wholeheartedly endorse what my friend Joe Randell has said. Like him, I had prepared a fair amount of my commentary around the ATAC paper. But I had not realized they had already made a presentation, so I'll just brush over this part lightly. It's a very comprehensive paper.

    On November 5, in Vancouver, I made a presentation to the finance committee, complete with supporting documents and statistics on the same issues. I've included copies of that submission for your information, as well as a copy of the ATAC report, A Crisis in Costs, prepared in November by the Air Transport Association of Canada.

    The ATAC paper is a very comprehensive document and deserves very close attention. I know the committee has heard from ATAC directly, and I won't quote the paper at length. ATAC president Cliff Mackay has told you that the explosion of fees and charges is having a serious impact on consumers. Businesses in small communities that depend on access to air transportation are all being affected.

    I'm here to endorse this view and to back it up with the experience of Pacific Coastal Airlines. Since last December, Pacific Coastal, and the aviation industry in general, has implored the government to rethink the initial position of the finance minister to assess a flat $12 security charge for each flight, or $24 for a round trip. We were promised there would be a review in September of 2002.

    Pacific Coastal operates from the south terminal at Vancouver airport. There is no passenger screening at that terminal. There is no screening at the other small airports we serve. Security has not been enhanced over the last year. We were assured that where there was no security screening, none would be added. This is a direct quote from Paul Martin.

    Now the promised review is finally under way. But before the review is even completed, it has become evident that security will be added to Vancouver's south terminal. We've already seen the architect's designs. There's been a budget put through by YVR for $3.5 million for security purposes. We hear that the government has already collected in excess of the $3.5 million from passengers passing through this terminal, before any changes are implemented. Yet we've been forced to collect the security fee since April 1.

    If screening is deemed necessary at the south terminal, what about screening at the fixed-base operators of any of the other Canadian airports? Many of them handle private corporate jets as large as Boeing 727s, or A-320s. How can you screen these guys? My point is that it's impossible to have 100% security screening.

    In other countries, where the aircraft are turboprops of fewer than 60 seats and the passengers do not mix with the sterile screened passengers, security is not required. It seems we in Canada are always determined to reinvent the wheel.

    Mr. Chairman, we're not screening at other airports we serve. Take, for example, Comox. Every passenger flying with us out of Comox has paid the $12 fee—for no security. If screening is introduced at Comox, the cost of screening a single passenger can't be $12. I mean, it's exorbitant.

    The government has characterized the security charge as a user-pay principle. A charge for user-pay requires that the payer get some service in return for the charge. This charge is without any specific service. Mr. Chairman, it's our position that the charge is really a tax. It's a tax hitting small coastal communities with devastating effect.

    The industry has a number of suggestions for a fairer means of addressing the cost of security. The suggestions include a tax as a percentage of the ticket, rather than a flat tax; amortization of 10 to 15 years for the capital costs related to new equipment; as well as funding by general revenue. As Mr. Randell said, it's not just the airline industry that is going to benefit from security. Both methods of funding and financing would be far more acceptable than singling out the airline passenger for yet another major hit. No other mode of transportation is expected to pay for enhanced border or port security. Why is it just the airlines?

Á  (1125)  

    Why such an exorbitant amount? A great deal of money would be wasted by the creation of a new crown corporation, all with its own levels of bureaucracy.

    If the government is determined to single out and punish airline travellers, a tax on the actual percentage of all airline tickets would vastly simplify the collection process. There would be a more level playing field for short-haul, low-risk carriers. And I'd like to emphasize low risk on short haul.

    It would also eliminate the collection problem for the Canada Customs and Revenue Agency. If you look at the paper they produce, there are 35 pages of what the Queen's going to do to you if you don't collect the money properly, and three pages of why we're collecting the money--it's true.

    Furthermore, the existing flat rate is unfair to passengers requiring tickets on more than one carrier. Take, for example, a passenger flying return from Comox to Winnipeg. This passenger buys a return ticket from Comox to Vancouver with us. We're forced to charge $24 for security. Then the passenger buys another ticket from Vancouver to Winnipeg, let's say, on WestJet. WestJet charges another $24. That passenger has paid a total of $48 in security charges.

    This is what the government has foisted on Canadians who aren't able to travel completely within Air Canada's code-sharing system. Many of them happen to live in remote communities where air travel is essential. These Canadians are being double-charged, and I would say gouged. There's no method for the second airline to account for these passengers without collecting the additional $12 each way. There's no provision for a refund. You don't even have that department at CATSA. It's an extremely regressive fee.

    We also believe that passenger screening should remain under the control of the administration of the transport department, as it presently is. In the ATAC A Crisis in Costs paper the reduction of service in small short-haul routes is graphically illustrated.

    At Pacific Coastal Airlines we have been forced to reduce capacity on three short haul routes since April 1: Vancouver to Victoria, a distance of 45 miles, from 231 daily seats to 129 available each way--a reduction of 45%; Vancouver to Comox, a distance of 85 miles, from 274 daily seats to 147 seats available each way--a reduction of 45%; Vancouver to Campbell River, 110 miles, from 297 daily seats to 147 daily seats each way-- a reduction of 50%.

    Over the past few years we've seen the divestiture of federal airports forcing newly created airport authorities to collect additional AIF from passengers. We've seen the creation of Nav Canada, which has forced airlines to do another pay-as-you-go billion-dollar expense. This is all for services that I believe we've already funded.

    Yet we see no elimination of the 4¢ per litre fuel tax, no move to eliminate airport lease payments, the $249 million transferred to Ottawa in 2001, expected to increase to $272 million in 2002-03. So it's going to go up more. We see no reduction in landing fees or terminal fees. Again, as Mr. Randell pointed out, they're going up. At the same time, we see over $1.3 billion in subsidies to railways, ports, freight, and other modes of transportation. With an uncertain economic recovery, rising fuel costs, unprecedented insurance rates, how does the government expect the airline industry not just to survive but even to prosper?

    I submit that the airlines and their clients, particularly small communities, are being ill-served, because there is a time when reliable safe air service can no longer be sustained. This is our legacy.

    Ladies and gentlemen, do something about it. This is a crisis in costs.

    Thank you.

Á  (1130)  

    The Chair: Thank you a lot, Mr. Smith. That was a very good report.

    I want some clarification. In the middle of your report you stated that there should be no security on airplanes with fewer than 50 or 60 seats. I missed that. Do you want to expand on that?

    Mr. Daryl Smith: In a large part of the world, turboprop aircraft are considered probably not that large a risk because they don't carry a lot of fuel. Where they aren't integrated into the national system and not mixing with screened passengers, then they're not screened. That's true in America and in Europe.

    The Chair: We will be charging for it.

    Mr. Daryl Smith: We are charging for it now.

    The Chair: Do you have some background on that you could give to the committee?

    Mr. Daryl Smith: I don't have background on that with me, but I'll certainly get it for you.

    The Chair: That would be very helpful. Thank you very much, Mr. Smith.

    Mr. Hill.

    Mr. Mark Hill (Vice-President Strategic Planning, WestJet Airlines): Thank you, Mr. Chairman.

    Bonjour.

    By way of brief introduction, my name is Mark Hill. I'm one of the founding partners of WestJet Airlines and currently vice-president of strategic planning.

    WestJet is a low-cost, low-fare airline. We serve 22 communities in Canada, from Comox, British Columbia, to Moncton, New Brunswick, with Halifax coming on stream in a couple of months' time. We have 3,200 employees and 34 jets, with firm orders for another 25 jets for delivery in the next couple of years.

    I'll get directly to the point. There's no doubt whatsoever that the ATSC is negatively affecting WestJet's passenger traffic and profitability on short-haul routes. As a low-fare airline, the $12 each way surcharge represents a significant percentage of our low base fare, up to 20% on many of our routes. Then you have all the other charges, which take it up to as much as an 80% increase.

    I provided a chart to the committee clerk this morning that highlights the impact of the security charge. On Calgary-Edmonton from April 2001 to September 2001 our load factor, or the percentage of seats we sold on that route, was 75%, compared to a system load factor of about 76%. So Calgary-Edmonton was tracking about the same as the rest of our system. As you know, the ATSC went into effect on April 1, 2002. Since the inception of the charge, our load factor on Calgary-Edmonton has fallen 15% and now sits at about 60%. In other words, we've gone from selling 75% of our seats on that route down to 60%.

    A further piece of information is that the local traffic, just the passengers who are travelling from Calgary to Edmonton or Edmonton to Calgary, not the folks who are going from Calgary to Edmonton, Grand Prairie, or Fort McMurray--

    The Chair: Or Thunder Bay.

    Mr. Mark Hill: --or Thunder Bay, anybody who's using Calgary-Edmonton to connect through.... As you know, we do have non-stop service from Calgary to Thunder Bay. That's our advertisement for the day. The local traffic dropped about 20% between September 2001 and the end of March 2002. So the immediate effect of 9/11 was about a 20% reduction in the local traffic. From April 1, 2002, through November, the traffic dropped another 20%. It's like a cliff. You can see it on the graph. We had the first hit. Then the charge comes in, and boom, another 20% of the traffic disappeared. As Joe here said, it is the straw that broke the camel's back.

    It has been argued that this drop in traffic might be caused by lingering concerns about air travel. This is simply not the case. Over the same time period that Calgary-Edmonton dropped 15%, our system-wide load factor was down only four points. Overall, Canadians are flying, but they're choosing not to fly on short-haul routes, where the security charge can represent a de facto 20% tax on the ticket price. I've often said that Canadians aren't afraid of flying, they're afraid of high fares. It's the total cost to the consumer, of which the tax is just another grab from their pocketbooks.

    In response to this drop in traffic, we've had no choice but to reduce the number of weekly flights operating between Edmonton and Calgary from 102 to 75 in an effort to maintain profitability on this route. It is our belief that without a change in the ATSC, this trend will continue. We have already pulled out of Thompson, Manitoba, due to the charge reducing passenger demand in that market. Short-haul routes, such as Calgary-Edmonton and Kelowna-Vancouver, could see even further capacity reductions in the months to come.

    If this persists, WestJet would be left with no choice but to redistribute our capacity to more mid- and long-haul routes, which will ensure strong load factors and keep our profitability where it needs to be. In addition, we have delayed expansion plans for ultra-short-haul routes in Canada, which could postpone the start-up of WestJet's short-haul services in the Maritimes, Quebec, intra-Ontario, and the B.C. interior. Clearly, this is not good for economic development in any of these regions.

    Since the ATSC charge has been put in place, we have announced many new services. We haven't announced one single route under 500 miles since that charge came into place, not one.

    It must also be stated that aside from the economic impact of the charge on our passenger numbers, we are also forced to incur additional direct costs as a result of this charge. For example, we pay a credit card commission of about 2% on every dollar we collect. This will result in approximately $1 million in additional operating expenses for the fiscal year 2003. That is a 48¢ commission to the credit card companies for every time we collect the $24 security charge.

Á  (1135)  

    Furthermore, we are expected to carry sky marshals at no charge. It was our impression that the security charge would cover the airfare for sky marshals. This cost alone can have a cascading impact on our profitability. Automakers do not provide free vehicles to law enforcement agencies, so why do we need to incur the costs of providing free flights to law enforcement agencies? It doesn't make sense.

    It also needs to be stressed that the charge does not apply equally to all carriers. A number of smaller scheduled operators who use the same airports as WestJet--and Jazz I'm sure--are exempt from the ATSC. For example, a number of carriers currently serving Calgary to Edmonton, flying into the Edmonton municipal airport, are exempt from the charge. They have no security whatsoever. This tax exemption has provided these carriers with an unfair pricing advantage on short-haul routes. The charge should apply to all.

    The government implemented the ATSC for the expressed purpose of raising revenue to pay for security costs. The security charge was not meant to dissuade people from flying on certain routes. It was not meant to penalize low-fare, lost-cost service providers. It was not meant to put a hold on the expansion of short-haul low-fare routes, and it was not meant to negatively impact profitability and force service reductions. Yet it has.

    The solution is straightforward. If the government believes it must impose the charge, then make changes to deal with the clearly unintended impacts I have just outlined. This can be done by addressing the disproportionate burden placed on the short-haul passenger.

    A number of different options have been recently presented. The Canadian Airports Council suggested to this committee a tiered approach, with cascading fees based on interprovincial, intraprovincial, regional, and long-haul bases. WestJet has also suggested a tiered fee based directly on distance flown, similar to the approach we have taken with Nav Canada fees.

    Another alternative would be to establish one rate for all short-haul flights under 500 miles, and a different rate for all flights over 500 miles. As you are aware, the Air Transport Association of Canada has also recommended a greatly reduced flat free of $7.65 per round trip.

    The salient point is that numerous options are available to alleviate the negative impact of this charge on short-haul passengers and airlines. What is needed is recognition by the government that the current one-size-fits-all approach is not working. It is in fact de-stimulating traffic, which is ironically reducing government revenue.

    In conclusion, WestJet agrees fully with the recent recommendation of the House finance committee that the government consider changes to the size and manner of the security charge. We also agree that a formal mechanism should be established for an ongoing review of the charge. We are prepared to assist both this committee and the Department of Finance in running models to determine the amount of revenue generated under various scenarios.

    I thank the committee for hearing our concerns today, and will be pleased to take any questions, as will my friends here, I'm sure.

    The Chair: Thank you very much, Mr. Hill.

    I think the first questioner is Mr. Moore. You can have as much time as you want, as long as you're on point.

    Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance): I appreciate the opportunity. I especially appreciate all of you coming here today on such short notice. This is one of those rare public policy areas where it's just strange that air carriers of varied and different historical and political backgrounds are in complete agreement. It's like the gun registry: it's just nonsensical from start to finish.

    There's one question I want to ask each of you individually, and just give a simple yes or no answer.

    The air tax was passed in the budget almost a year ago today, and was imposed on April 1. From December 2001 to April 1, 2002, did the finance department, Paul Martin, Mr. Collenette, or anybody from the federal government contact you to inquire about the impact the air tax would have on your business?

Á  (1140)  

    Mr. Daryl Smith: No. I can expand on that a little bit. We had an answer from Mr. Collenette after an awful lot of lobbying and letter writing. I had almost every MLA, several MPs, including the premier of the province, and all the mayors on the coast send letters to Paul Martin on the issue, and they went to Mr. Collenette as well. Mr. Collenette said it wasn't his problem, it was a finance problem. Mr. Martin didn't say anything. Finally, in late April, we got a reply from Mr. Martin.

    Mr. James Moore: Which said...?

    Mr. Daryl Smith: It said “You got it, sweetheart”. It was a bit longer than that, but there's a copy of it in my brief.

    Mr. Mark Hill: I can expand on that a little bit. After this was sprung on us about a year ago, our CEO called to the highest levels of the finance department to explain precisely its impact. We picked that off right away, the day it occurred. We were told in no uncertain terms they thought they might have rushed into it, not to worry about things, and they would have it tidied up in February. They said “Don't yell, don't scream, don't shout. We'll fix this thing for you.” Here we are almost a year later--and nothing.

    Mr. James Moore: One thing in your response I'm interested in, Mr. Hill, is that you commented on air marshals and how the $24 doesn't pick it up, that you as a business owner now have the opportunity not only to pay the $24 tax but to contribute to your country by paying for the airfare of an air marshal, apparently. How does that work in terms of the air marshal? When they decide that a certain flight is a potential risk, how many hours' notice do you get that an air marshal is going to be on a flight?

    Mr. Mark Hill: We don't know.

    Mr. James Moore: Thank you.

    Mr. Mark Hill: That's a good point, Mr. Moore. WestJet prides itself on not overbooking aircraft. We're probably the only airline.... I can't speak for Daryl, but I suspect the Air Canada family do overbook flights. We don't, and we never have. So you have this perverse situation where air marshals--and we've been told up to four of them--can appear at the gate and can appropriate a seat without any compensation on a full flight on a peak day. On a Friday going into a Thanksgiving holiday, for example, 25% of our flights will be completely, 100% sold out.

    First of all, we can't tell a consumer that they're being bumped for national security purposes because we're not allowed to do that. Even though we do not bump passengers, we just have to say they're being bumped. Then we have to provide compensation. We have to provide them an alternative way of getting from A to B. Not only that, any potential terrorist sitting in our boarding lounge is thinking, gee, WestJet doesn't overbook, so how come they're overbooking? Guess who's on the airplane if we're overbooking the flight. It's painfully obvious what's going on. The only reason we overbook is to put sky marshals on the flight. So the thing is flawed from A to Z, let alone the fact that we're supposed to be paying for this.

    Mr. James Moore: Mr. Randell, my question is for you. You mentioned that you've cut back routes. I believe you mentioned in your report that you've cut back 12 different cities, and you said that more are coming. What cities are going to lose service next?

    Mr. Joseph Randell: We've not specifically identified any cities. We have had some discussions with a number, and we've announced what we know for now. Any others, though, are still subject to review and further discussion, but there are a number of cities across the country, marginal ones, that we could say are on the edge.

    Mr. James Moore: Mr. Smith and Mr. Randell, neither of you have ever had air marshals come onto your planes?

    Mr. Joseph Randell: I cannot say that we've never had air marshals on our aircraft.

    Mr. James Moore: Have you had the problem Mr. Hill mentioned of--

    Mr. Joseph Randell: We would have a similar situation. That's correct.

    Mr. James Moore: Daryl?

    Mr. Daryl Smith: We've never had one.

    Mr. Mark Hill: Just to clarify, I should point out that we've never had one either. Given what's coming down the pike, it could very well happen, but there have been no sky marshals.

    The Chair: How many of your airlines fly into the United States from a Canadian port? Any of you?

Á  (1145)  

    Mr. Joseph Randell: We have quite a large transborder route network.

    Mr. Daryl Smith: We fly no transborder routes, only charters.

    Mr. Mark Hill: We fly charter services into the United States.

    The Chair: I'm sorry, Mr. Moore, carry on.

    Mr. James Moore: When the air tax came through the first time, all the opposition parties made a list of all the airports that have no security whatsoever. We tried to get each of them deleted but we were shut down every time. And it's funny, then we got down to the Miramichi airport, and we were told we could take Miramichi off the list. After we explained to the government that the airport is in fact dead, they put a caveat in there saying, well, we reserve the right to put Miramichi back on should there ever be jet service back into Miramichi.

    I'm interested in your comment that in the Vancouver south terminal there is no air security whatsoever, but that now it is being put in place because of the $24 tax. It's a niche market when you're able to get out of a car and walk onto a plane. Not only is the tax hurting you, but there's this level of bureaucracy interfering where a bonus, to be able to fly through the Vancouver south terminal, is gone.

    Mr. Daryl Smith: A large percentage of our traffic at the Vancouver south terminal is O and D passengers, who just go from A to B and back again. Some of them are flow-through with Air Canada and a few other carriers. Where they are flow-through to Air Canada, they come to the south terminal, we bus them over to the Air Canada terminal, and they then go through security or whatever. We are about two miles away from the international terminal.

    The only security we have is a gendarme in a kiosk who watches the ramp and makes sure there's nobody running around out there, and we don't see any need for change. As you said, it's a niche market. I think somebody in one of their submissions recently said that a lot of their customers used Glad garbage bags, not Samsonite luggage. We have a few of those too.

    It's just creating an inordinate burden on a small niche market. If we moved across the river to Boundary Bay, then we wouldn't have it. The only commonality is that we use the same runway as the larger planes.

    Mr. James Moore: It's interesting that the three carriers fly to every single region of Canada. I guess this is the softball question from the government side. Given that you're paying all this extra money in taxes, can you comment on the improvements in security and whether or not you're noticing any?

    Mr. Mark Hill: I would say that prior to this charge of $12 per one-way direction we were able to do it, and Joe's numbers are probably the same. The cost was about a dollar a passenger, not $12. Everybody in this room has flown. Do you see 12 times better security? I don't.

    Mr. Joseph Randell: One of the issues we find, frankly, is the inconsistency in standards that are applied. We're hopeful that there will be some more consistency and that the processes will become more efficient, because it's not only the $24, it's also the hassle factor. People look at it and say they don't really know how long in advance they have to get to the airport because they don't know whether it's going to take half an hour to get through, ten minutes, or five minutes. When you look at whether you drive or whether you fly, that becomes very significant. You never know whether you'll have to take out your laptop or whether you won't have to take out your laptop. They're very inconsistent, and it's one of the issues we'd like to see--

    Mr. James Moore: I'm sorry, I just have one last question, and it's this: if the air tax is cut, reduced, or made part of the fare--specifically Jazz, as you've named routes in cities like Yarmouth, Stephenville, etc., where you guys have cut back--if the air tax is cut a bit, what are the first cities to which you will reintroduce service?

    Mr. Joseph Randell: We have no plans to reintroduce service. It will be a function of what happens with the market in total and what we see as being the potential viability of these routes. It doesn't mean that we would not at some point go back into these centres, but at this point we're struggling to maintain what we have.

    The Chair: Thank you, Mr. Moore.

    Ms. Desjarlais, I realize now that there was no need for concern about Mr. Moore going beyond his time. Do you realize that?

    Some hon. members: Oh, oh!

    The Chair: You have to trust the chair.

    You go ahead. You're on the clock.

    Mrs. Bev Desjarlais (Churchill, NDP): It was just a risk I couldn't take. What can I say?

    Thank you for coming.

    Certainly the comments you've made today demonstrate what a lot of us felt was going to be the outcome when the security tax was introduced. Again, I'm from Thompson, and in spite of the Minister of Transport assuring me in the House of Commons that everybody has security, I've yet to go through it in Thompson, Manitoba, when I board my flight. It just isn't there, yet they've been collecting the $12 there as well, absolutely.

    There's no rhyme or reason to it, in my view, and I'm in agreement with you as far as the security goes. I know of someone who actually came from Australia with these fireball things on the end of chains, where you soak them in kerosene and you light them and do a fire show in the dark. They actually came back with those on board, all the way to Thompson from Australia. It's not as if there's a real assurance there that everything is being caught. Not that I'm suggesting anybody do it. This person quite frankly had intended to put them underneath but forgot, and they were literally not picked up anywhere.

    I'm glad that you mentioned the administrative fee, because I've mentioned it to people before. WestJet, I believe, at one point along the way had said it would cost them about four bucks for the administrative side of collecting the fee, paying it out and doing all the specifics, so I was going to question you on it. Now you mentioned 48¢ as the credit card commission. Would there be any other charges there related to the administering of the security fee if you had to put a price figure on it, or have you put a price figure on it?

Á  (1150)  

    Mr. Mark Hill: From our perspective, I think we.... Have we drilled down further? Is there a cost of administering it? Sure there is. Have we quantified it? No, other than saying 2% of $24 is 48¢, and that's 48¢ out the window. That's just gone.

    Mrs. Bev Desjarlais: The reason I ask is that there is some suggestion that the security fee should just be reduced to say $5, and in my mind I've got this $4 WestJet mentioned, and I'm thinking, if it's costing $4 to administer it, what the heck is the point of the $5?

    Mr. Mark Hill: I would be surprised if it were as high as $4 per unit to administer it, but at the end of the day, 48¢ times 4 million passengers next year is $1.5 million to $2 million, and it comes right off the bottom. With a lot of these charges--we collect the on behalf of airports--we get a commission of 3% to 4%, so we're not out of pocket. On this particular charge we're out of pocket, and then we have to provide free seats over and above it. It's just that they keep taking and taking and taking. We can't continue to do that forever.

    Mr. Daryl Smith: In our organization, because of the administration of this, we had the same problem on the 2% credit card thing. Nowadays, if the transaction hasn't gone through a travel agent or whatever, almost all the tickets are bought with a credit card, which is good for cash flow, but it costs us 2%. We've calculated that it actually costs us one additional person in accounting staff to look after this.

    Mrs. Bev Desjarlais: A full person to...?

    Mr. Daryl Smith: A full person to ensure that it is done correctly, because the teeth that Revenue Canada, or whatever we call them today, have are enormous.

    Mrs. Bev Desjarlais: I know they are. I actually commented when the bill was before the house that there were all these pages, and everything that was going to happen to you--the specifics of making sure you got this money and what amounted to the security side--was very limited.

    Mr. Daryl Smith: I only have 300 staff. So for a place like Joe's, I bet there are considerably more people involved.

    Mrs. Bev Desjarlais: You indicated that Paul Martin at some point had said there would be no security where there isn't already. When did he say that?

    Mr. Daryl Smith: At the very outset.

    Mrs. Bev Desjarlais: You have a briefing there. Do we have that briefing?

    Mr. Daryl Smith: Yes. You're welcome to this one.

    Mrs. Bev Desjarlais: Well actually I don't have it, so I'm curious.... Oh, it's not translated. That's fine. I can wait for the translated copy. So if it's in there, that's fine.

    Mr. Daryl Smith: This actually is an adjunct to my presentation to the finance committee.

    Mrs. Bev Desjarlais: We don't have the presentation to the finance committee.

    Mr. Daryl Smith: No. That's why I brought it.

    Mrs. Bev Desjarlais: Our clerk, I know, is going to arrange to have all that for us.

    Mr. Daryl Smith: So I think you have them. There are some very relevant letters. The letters to and from Paul Martin and other carriers are included in this.

    Mrs. Bev Desjarlais: One of the things that's going to happen if Bill C-17, the Public Safety Act, should follow through is the passenger list is being made available to RCMP, CSIS, whoever ends up getting them. Does that create any bit of a cost problem or a problem for your air carriers?

    Mr. Mark Hill: Who's going to pay for the interfaces to hook our systems up with whoever we're supposed to deliver this information to? It's not just a matter of hooking a black box to a computer and magically the lists come out. I know with some of the other IT projects we have at WestJet, you're probably talking $250,000, easily. Sliding that requirement in on top of all the other ongoing IT projects that are required to run the airline means absolutely there's a cost to it.

Á  (1155)  

    Mr. Joseph Randell: That's something we've already had to do for transborder services, because now when you fly into the U.S. you have to provide not only the passenger name, but also passport numbers, birth certificate numbers, etc., and that's at a huge cost. Other countries in the world are instituting similar systems. One of the issues we have as an industry is there's a total inconsistency between what these countries want. In each case it takes significant IT development in order to provide that if you're flying to other countries. Within Canada it's a different issue, of course.

    Mrs. Bev Desjarlais: Mr. Smith, would that create a major problem for yourself as well?

    Mr. Daryl Smith: It depends on whether CSIS and RCMP want every passenger listed, or if they just want access to our passenger list. There's a big difference. If they perceive that there may be a problem and they want access to our passenger lists on a particular flight or on a particular route, I don't have a big problem with it. But if they want the whole enchilada, well, I have the same problem as these guys.

    Mrs. Bev Desjarlais: My understanding of it is they're going to do a review of passenger lists. So I don't know whether they're going to say we're only going to do it in Vancouver or we're only going to do it in Thompson. I'm not totally sure of what their intention is.

    Mr. Mark Hill: Something that is rather absurd about that is on a low-cost airline you call up, you make a reservation, you pay with a credit card. Hi, it's Joe Smith, I'm flying to Fort McMurray today. Is it Joe Smith? We're not even required to match up.... You can get fake ID off the Internet. So what good is the list to the RCMP when it's a fake name with a fake driver's licence when you check in?

    Mrs. Bev Desjarlais: They assured me at the other meeting this morning that it would do the trick. They'd be able to get them so....

    Mr. Mark Hill: It will stop the honest people, but it won't stop anybody who's dishonest.

    Mrs. Bev Desjarlais: You indicated supporting ATAC's proposal as to how the fee should be collected, and you thought it made sense. But quite frankly I didn't, because it was suggested that maybe we charge by distance, and being someone who lives in Thompson going to Winnipeg, I don't think necessarily that the distance factor is at question if you're looking for a security risk.

    Certainly if you're in the short haul I can see where that's going to benefit you, but from the perspective of someone, say, in a northern rural community farther away from a major centre, that still doesn't address the problem that it may not be the major security risk.

    My thoughts on it were that we'd be far better to go back to the old system of the air carriers paying their per-passenger fee--whatever fee they end up having--for security by checking the baggage, renting equipment through now CATSA, which has 85 employees, by the way--very much needed for this new security job--and have whatever security fees the airport authorities might have to have incorporated into the cost of the airport improvement fee.

    Those to me are airport-associated security fees that would be incorporated into one cost that's going to go to the passenger. And then the rest of the security should be handled under general revenue from the Government of Canada, because, as you indicated, we don't charge ports, railways, buses, or anybody crossing the border a fee for having a security check. Would that seem like a more reasonable approach?

    Mr. Daryl Smith: I still favour the percentage, because then you don't have to do all the arithmetic. You don't have to have a special department to collect the money. We don't have to have a special department for us to submit the money; it would be an automatic thing.

    Mrs. Bev Desjarlais: CATSA is not collecting the money. I think that should be very clear. CATSA is not set out. The money is being collected by Revenue Canada, and CATSA gets an assigned amount, so that isn't going to be an issue there.

    Mr. Daryl Smith: So what's left over Revenue Canada keeps.

    Mrs. Bev Desjarlais: No. It goes into general revenue, of course.

    Mr. Daryl Smith: But we've been told it's not a tax, it's a fee. So how can it go into general revenue? It can't.

    Mrs. Bev Desjarlais: It says right there.

    Mr. Daryl Smith: It's constitutionally against the law for it to go into general revenue.

    Mrs. Bev Desjarlais: They never, ever said that they were just going to use this for security.

    The Chair: Those are very good points.

    I'm going to have to turn the chair over to the vice-chair and attend another meeting that was just called a few minutes ago to protect the integrity of the committee system, which I think you'll want me to attend.

    Technically we have a notice of motion, then Mr. Harvey is the next questioner. Technically we have a notice of motion that can't be presented until 3:30 unless you folks agree. It doesn't matter.

    Mrs. Bev Desjarlais: I think we'll do it next week.

    The Chair: No. We're going to adjourn after this hearing today and we're going to reconvene at 3:30.

    Please listen for a minute, Ms. Desjarlais.

    I think we've heard enough evidence to be quite truthful with you, because we want to get this report in. We've asked the finance department to find out how much money they have collected since April 1, and no one's been able to tell us that, so I put the finance department on notice. We don't need them as a witness. I want to know how much money came into the till. That's what you guys are questioning.

    I would also like to know, and I don't know if we'll be able to get this, how much we spent so far on security. That's what I've asked the finance department to do. And I think what we should start doing right now, this afternoon, if we can give it half an hour, three quarters of an hour, is start putting our report together with respect to the recommendations we're going to make to the House next week. Don't forget, we may not be sitting next Thursday.

  (1200)  

    Mr. James Moore: You said you've asked for those numbers from the finance department. Did we get them, yes or no?

    The Chair: No, not yet.

    Mr. James Moore: The second thing is I had on the list to have Paul Martin come before the committee. Did he say no?

    The Chair: No.

    We have three other witnesses that I had. We have the Airline Pilots Association, which we hopefully will do Tuesday. Then there's the tourism, which will back up what these folks are saying, and the Canadian Association of Travel Agents. I don't know why they would come, because—

    Mr. James Moore: But neither Mr. Collenette nor Mr. Martin?

    The Chair: If you want them I could get them here Tuesday maybe. But is that necessary? Because we're ready, unless you want to question them.

    Mr. James Moore: If you've decided what the committee is going to say, then--

    The Chair: Just a minute.

    What do you want, Bev? Go ahead, you're on.

    Mrs. Bev Desjarlais: Yes, quite frankly, Mr. Chair, you're going to decide all these things without the rest of the committee being involved, and really there's no point in us just showing up.

    With all due respect to your experience and your wanting to get this thing settled, we all want to get it settled, Mr. Chair, but I also don't want to be in a situation where we're not giving witnesses ample time to make presentations and we're not giving members who don't know this whole issue proper time to get to know the whole issue.

    Quite frankly, I've been involved in it for a while, so I've made my decision. But if I hear something different, something that says I'm wrong, I'll admit that.

    The Chair: Do you want to hear the finance department? I don't care, I'm willing to stay here.

    Mrs. Bev Desjarlais: Yes, I think it's important that we hear—

    Mr. James Moore: I hear what you're saying. We want to get this done--

    Mrs. Bev Desjarlais: And I agree with you.

    Mr. James Moore: Yes, I'd like to get this done before Christmas as well, but if you rush through and you have all these witnesses and you assume what our conclusions are going to be, then nobody will read the report. It will be dismissed.

    The Chair: Seriously, these folks in this industry are having a tough time. Do you have any problems about that, recognizing that they have a tough time?

    You got it? All right. The longer we wait, and we're going home next week.... Do you have that right? Do you want to wait? I'm just a chairman, so it's whatever you folks decide. Do you want to wait until we come back in February before making a report? I'm the chairman, but if that's what you want, let's talk about it.

    Mr. James Moore: We have the witnesses here now, so let's come back at 3:30 today and frame this. Speaking for myself, I'll be here Friday and Monday. We can have more witnesses then. We can have members of the committee coming in as they can and let's just stack them at the front end and then—

    The Chair: We'll see at 3:30.

    Mr. James Moore: Yes, perfect.

  (1205)  

    The Vice-Chair (Mr. Marcel Proulx (Hull—Aylmer, Lib.)): Good morning, gentlemen.

    Where are we at in the...?

[Translation]

    The Vice-Chair (Mr. Marcel Proulx): I believe you wanted to ask a few questions, Mr. Harvey. Go ahead.

    Mr. André Harvey (Chicoutimi—Le Fjord, Lib.): Mr. Chairman, has Mr. Hill from WestJet left for good?

    We can give him a little time. Our time is valuable, Mr. Chairman, but not so valuable that we cannot accommodate our witnesses and not comply with both official languages.

    Thank you for coming here today, because I know your industry is facing some major challenges. Everyone is fully aware of the situation.

    Nevertheless, I am pleased that the Minister of Transport and the Finance Department are at least reviewing the fee that has been imposed. That's good news and we can only hope for better news to come.

    Personally, I don't think that this fee is solely to blame for the transport sector's many problems. We need to be realistic and to realize that many other factors come into play, in particular competition from other modes of transportation. You mentioned rail, Mr. Randell, and I'll come back to that subject.

    Travellers are being charged an additional $24, but the best way of lowering costs and satisfying customers, the travelling public, is competition. The Transport Minister alluded to this several times.

    I want to take this opportunity to ask Mr. Randell, since he manages a large outfit and faces countless challenges, to explain to us briefly the arrangement with the Quebec government concerning guaranteed purchases of airline tickets. If memory serves me well, the value of these guaranteed purchases increased from $11 million to $13.5 million. I'm referring here to tickets purchased by the Quebec government for its public servants and so forth.

    Could you give us some details about the nature of this arrangement? I'm not sure about the rest of the country, but in Quebec, many people were critical of the partnership agreement between Air Canada Jazz and the Quebec government over the guaranteed purchase of tickets. The main criticism was that the agreement violated the spirit of open competition. Michel Leblanc, the owner of Jetsgo who was scheduled to be here this morning, maintained that the arrangement looked a lot like a case of unfair competition.

    Therefore, since we have you here, Mr. Randell, could you explain to us this partnership, which I find rather unusual.

[English]

    Mr. Joseph Randell: First of all, I was not directly involved in the negotiations between Air Canada and the Province of Quebec with respect to the arrangement that was agreed upon. As Jazz, of course, we have a substantial presence in the province of Quebec.

    There have been a number of routes we operate that are marginal and in fact have been in very serious risk of being discontinued, as we have cancelled routes in Newfoundland, Nova Scotia, New Brunswick, Alberta, British Columbia, and not long before that, actually, in Thompson.

    There were discussions that were held over the future of the routes, our presence in the province, and the arrangements that could be made in order to provide more certainty with respect to the future, which led to an agreement between the province and Air Canada.

    Again, in terms of the details, I was not involved. It was negotiated directly by Air Canada and the Province of Quebec.

  (1210)  

[Translation]

    Mr. André Harvey: This arrangement was the result of bilateral negotiations. Did the Quebec government put the contract out to public tender? Did any other airlines have an opportunity to bid on the contract or were the negotiations strictly between two parties, namely the Quebec government and Air Canada?

[English]

    Mr. Joseph Randell: Again, I can't really comment on the nature of the negotiations. I don't know of any tender that was put out. There were, obviously, discussions with respect to service, fares, the presence in communities, etc.

[Translation]

    Mr. André Harvey: Mr. Randell, you mentioned the massive subsidization of VIA Rail in your presentation. In the coming weeks, the government will be tabling its Transportation Blueprint. In your opinion, is this an important document? The blueprint will attempt to better identify the myriad challenges facing the transportation industry in the next 10, 15 or 20 years.

    Are you familiar at all with the blueprint? Were you consulted at all about this initiative, as it involves maritime, air and rail modes of transportation? Did you have an opportunity to discuss the drafting of the Transportation Blueprint with government officials?

[English]

    Mr. Joseph Randell: Monsieur Harvey, I was aware of the blueprint being produced. No, I've not been consulted.

    In the paper today, I speak to the requirement or the need, we believe, for clear policy with respect to where we see our transportation system going and the role of rail versus air versus bus versus the automobile, because these are important considerations, and we believe there's more clarity and perhaps even more debate required in those areas.

    Clearly, with the decision to provide the amount of subsidy that is going to VIA Rail, that in fact is a policy. When you look at the amount of money that's being taken out of our business, it's of huge concern.

    Earlier, I was speaking about regional airports in particular. When I look at the amount of money that's being taken out in airport rent from the larger airports in this country, none of it is finding its way back into regional airports, other than a small ACAP program.

    There is a serious issue there. One of the things that perhaps Mr. Hill may disagree with, but Mr. Smith may agree, is when we talk about alternatives, I believe there are alternatives in terms of how this money is used for federal rents.

    As well, particularly in some of the smaller airports that cannot sustain larger airplanes, another alternative, rather than by length of flight, is the size of the aircraft. That in itself, I believe, has.... You know, the size of the airplane, if the market's only so large and there are issues with regard to that market, then different application of the security fee based on aircraft size is certainly an alternative that I think warrants consideration, especially in some of the smaller airports and regions and some of the more fragile services, because we clearly operate more on the edge in terms of the size of markets and the size of the demand.

[Translation]

    Mr. André Harvey: I have one last quick question, Mr. Chairman.

[English]

    Mr. Mark Hill: Could I make a comment on that?

    The Vice-Chair (Mr. Marcel Proulx): Did you want to address this, Mr. Hill?

    Mr. Mark Hill: Yes.

    On the size of the aircraft issue, we've proven with WestJet that we can fly into a market, such as Comox, British Columbia, with 20,000 people, and operate twice daily out of there with 120-seat 737s.

    There's Grande Prairie. We've been in Brandon. We can't stay in Brandon due to runway issues in the summer, but we can operate full-size jets with our low-cost structure in a number of these smaller markets. There isn't a market in Canada.... We haven't been able to get into Quebec quite yet. And quite frankly, the arrangement you discussed vis-à-vis Air Canada has definitely put off our plans to do anything in Quebec indefinitely--certainly anything intra-Quebec. There's no point competing when Air Canada has basically negotiated a monopoly for themselves in there.

    But basing a fee on the size of aircraft is basically.... You know, the lowest unit cost you can get is with jet aircraft, and if you are basically prejudiced against them, you'll only have high-cost operators operating into these small markets with high fares.

    We've proven we can operate. Thompson didn't work out, but that's as much the security fee. But we're in a number of smaller markets. There are up to about twenty more that we could get into if it weren't for all these fees and charges.

  (1215)  

    Mr. Joseph Randell: Perhaps I could speak to that, though. Generally, our approach is to serve more airports in a surrounding area than only choosing one airport. As an example, we don't only serve Kelowna; we serve Penticton, we serve Castlegar, and other airports where generally the passenger base is certainly smaller. And these airports are important to these communities. So we serve airports that are in closer proximity, and generally you will not find in all of those airports sustainable service with larger airplanes.

    Mr. Mark Hill: The point with that being that we have 25 airplanes being delivered, sir, in the next little while, with up to about 60 more.

    We're not in Penticton because we're putting our assets in other locations. We'll get to Penticton. I'm not sure about Castlegar, but we'll get to Cranbrook and we'll get to Kamloops and a lot of other places. So let's be very careful with that line of questioning.

    The Vice-Chair (Mr. Marcel Proulx): I wish in your consideration you would add Gatineau, Quebec.

    Mr. Smith, you wanted to address this.

    Mr. Daryl Smith: We're talking about the size of the aircraft. If we go to some kind of a “ratcheted up” program, similar to what Nav Canada has done for their charges on the various sizes of aircraft, we'd take quantum leaps from the smaller airplanes.

    I operate a number of 15-passenger and 19-passenger airplanes. I operate some 36-passenger airplanes, plus air-taxi types of aircraft. I'm in all three categories of air-taxi, commuter, and airline category airplanes. I have a whole spectrum. I'm one of the few operators still in business who does that kind of thing.

    My point really is that the Beech 1900 or Embraer Bandeirante is $50 a day for Nav Canada. The Short 360 carries twice as many people as the Embraer Bandeirante, 36 passengers if we fill it all up, and pays $600 a day. Suddenly, we're up against an operator who has a bunch of 1900s. They're going for $50 a day for Nav Canada and we're paying $600.

    We've talked to Nav Canada. We've done everything we can about it. It falls on deaf ears. We carry on and wonder whether we should get out of these airplanes and go back to smaller airplanes. It's a serious consideration. Maybe we should be going back to nine-passenger airplanes and get away from the whole mess.

    I also operate a fairly large group of amphibious aircraft. They don't pay anything. Perfect. Do we go back to flying around 60-year-old Grumman Gooses?

    I guess my real point in the whole discourse is that we're really tired. We're fed up with people in offices with no windows making the rules and putting on charges without input from the ministry. Here we are, meeting eight months after the fact that this tax has been going on.

    In spite of all the submissions the airline industry made.... Mr. Beddoe and I talked about it. We had conference calls. We wrote to Mr. Collenette. We wrote to Mr. Martin. Here we are, after all this time, finally having a review. Maybe we should have done this before he brought out the budget in December last year. We have this all backwards.

    Mr. Mark Hill: If I could make a comment on the side of aircraft, Canada is now in a situation where WestJet operates the lowest-cost sustainable operation in the country. We're flying jets between Vancouver and Kelowna. Everywhere else we fly, we give people the opportunity to fly in full-size jets.

    Other operators are flying in turboprops and are getting a competitive advantage. They're only being charged, say, a lesser amount in security charge. We're flying the same route. We can't have that.

  (1220)  

    Mr. Joseph Randell: If I could add one comment, I threw that out as a suggestion. Mr. Hill earlier said that he has the option of redeploying his assets, which he has done, in terms of longer routes. With his airplanes, it doesn't matter whether he flies short routes or long routes. In our end of the business, we have nowhere to go but to service short routes because of the size and nature of our operation. That was really the impetus for the discussion.

[Translation]

    The Vice-Chair (Mr. Marcel Proulx): You're time is up, Mr. Harvey. You've had your kick at the can.

    Ms. Yelich.

[English]

    Mrs. Lynne Yelich (Blackstrap, Canadian Alliance): Yes. I have a few very quick questions and then I'll let James ask his.

    My specific one, first of all, is to Joseph. You said in your submission that you are reducing your service to several communities. One of them you named is Saskatoon, which is close to my heart. Before that, you talked about how this fee hurts the industry and why you have to cut the services. Would you say that closing Saskatoon was directly related to this security charge?

    Mr. Joseph Randell: We closed our crew and maintenance base in Saskatoon. We still serve Saskatoon.

    Mrs. Lynne Yelich: Yes, barely.

    Mr. Joseph Randell: As Jazz, we serve Saskatoon to Calgary, Saskatoon to Vancouver, and Saskatoon to Winnipeg.

    Mrs. Lynne Yelich: Do you fly to the States at all? Did you cut any service to the States on any short-haul flights?

    Mr. Joseph Randell: Yes. We cut service on a number of routes.

    Mrs. Lynne Yelich: You mentioned the Canadian one, so I'm kind of curious. I have heard that there are quite a few flights with only 50% or 60% of passengers. I wondered about that.

    Mr. Joseph Randell: We have cut a number of U.S. routes, yes. The decline on the transborder traffic was actually greater than on domestic traffic because of the condition of the U.S. market.

    Mrs. Lynne Yelich: I'm done with questioning you. I'm going to go home to think about this a little bit.

    I want to thank WestJet for the direct service from Saskatoon to Ottawa. Someone has recognized us, that we are a market.

    Daryl Smith, you gave some real statistics. A 45% drop is significant. Have you ever seen such a drop anywhere else in the history of the airline? When any other fees hit...for instance, when navigation fees started, have you ever seen that kind of drop in—

    Mr. Daryl Smith: No. No, not even close.

    Mrs. Lynne Yelich: It's definitely related to the security. People are just fed up, and are saying—

    Mr. Daryl Smith: The markets I talked about here are all very, very short-haul—45 miles, 85 miles, 110 miles. Where there were combinations of seats available last year, I've given you the statistics on the number of seats left now.

    In some cases, we've cut back on the service and tightened up the flights. We actually have a better load factor than we thought we were going to get. So that helped us a little bit. But it hasn't helped the community a bit.

    People are getting less choice. I have a letter on file from someone who has been a customer for 25 years. It says that if this were initiated on certain routes he flew on all the time, he and his family would not be flying any more, because the security fee would equal the cost of the ferry fares—both ways—and costs for his car, family, and fuel. He would have money left over for lunch. This is just for the security fees.

    Mrs. Lynne Yelich: Never mind the hour it takes to get through security. But I'll let James ask now—

    Mr. Daryl Smith: Or two and a half hours, if you're going from Vancouver to Seattle, I think. You can drive from Vancouver airport to Seattle in two hours, or two hours and 15 minutes.

    Mrs. Lynne Yelich: That's right.

    Mr. Daryl Smith: To check in now, cross-border, they recommend a two-and-a-half-hour lead time to check in.

    The Vice-Chair (Mr. Marcel Proulx): Mr. Moore, we're on the five-minute round now, so you have only about a minute and a half.

    Mr. James Moore: Although it's not entirely germane to what the committee is studying, I was actually pleased the issue of what the Quebec government is doing with Air Canada was touched on. Certainly it's a choice of the provincial government, but it's an inverse way of re-regulating, guaranteeing monopolies, and disallowing citizens from having choice in flying.

    I did want to ask each of the witnesses here.... There are basically four things this committee can recommend in our report: lowering the air tax; eliminating the air tax and having security funded out of general revenue; scaling it as a percentage of fare; or scaling it based on distance.

    The size of the plane isn't going to work. When you fly inside provinces.... For example, I fly from Vancouver to Prince George. One day I'm in a Dash 8, and the next day I'm on a 737, both with Air Canada or one of its sisters. So it wouldn't work. So that's one of the four.

    The choices are to lower, to eliminate, a percentage of distance, or a percentage of fare. I would like each of the witnesses to let us know which of the four they would prefer.

  (1225)  

    Mr. Daryl Smith: The percentage of the fare, unquestionably.

    Mr. Joseph Randell: I support that.

    Mr. Mark Hill: Yes, I would support that too.

    Mr. James Moore: Okay, that's it.

    The Vice-Chair (Mr. Marcel Proulx): Mr. Gallaway has been very patient.

    Mr. Roger Gallaway (Sarnia—Lambton, Lib.): I have been listening with rapt attention.

    I want to address Mr. Randell and Mr. Hill.

    I want to get some sense out of this, because I think everyone here is a frequent traveller. I think we all travel a couple of times a week, and usually by air. And I travel out of two airports. I travel out of Sarnia; it's my riding. For many years I travelled out of Sarnia airport. I have to go through Pearson Airport, so I've now short-circuited that and I refuse to fly on Air Canada Jazz.

    No offence, Mr. Randell, but it's much easier for me to drive to Hamilton and fly WestJet. It's a whole lot better. It's a whole lot faster getting here. It's not your fault that this obstacle called “Pearson” is there.

    I have an observation, because this committee is currently looking at the air tax, this $12 fee, and because I do still fly out of Sarnia once in a while, particularly if I have to stop in Toronto. Now your airline is flying Beeches out of there, as opposed to Dashes, so you have a maximum of 18 or 19 people appearing. So these security agents, what I call the “wand ladies”, fill the time with searching luggage.

    In other words, one would say the level of scrutiny in security is extremely high. I'm also hearing from people who travel through there and who are just going to Toronto or to London that it is in fact extremely annoying. In all fairness to you, you don't have any control over that.

    If I go to Hamilton airport, which I do twice a week, I get through in a very expeditious fashion because I don't carry luggage. I carry a little carry-on bag and that's it.

    I want to know what kind of feedback you're getting from your customers, your clients, your “guests”, as they say, on WestJet, on the new wall of security being imposed. Are they saying they feel more comfortable, or are they saying they're feeling hassled?

    Mr. Joseph Randell: I did mention earlier that one of our concerns is the issue of consistency, and the very point that you mention is of extreme annoyance to all customers. It's not that they don't appreciate being security-cleared, because a large number of our passengers, frankly, do appreciate being security-cleared and having that peace of mind. It is how consistent it is.

    One of the concerns brought up earlier is that this would be devolved and it would become a local airport control issue. When things devolve to that point there are issues of those very inconsistencies, where one airport will be very different from another.

    So I think CATSA has the challenge of finding common standards and having a consistency across the country, of giving passengers that peace of mind but at the same time doing it economically.

    We haven't talked about CATSA and its ability to borrow money and how it amortized these costs that are associated with the security system, etc., but the whole issue of consistency, control, and doing it efficiently is really important. I think that will address a lot of the very issues you're talking about, because, yes, we do get feedback, and yes, it is an annoyance. Sometimes it goes far beyond where it should go under any degree of common sense being applied.

    Mr. Mark Hill: I would echo those comments.

    One of the things an outfit like a McDonald's restaurant has done is they have a consistent product and you know what you're going to get every time.

    Some places make you turn on your computer. They're now making you undo your belt buckle--now, that's a new one.

    Turn on the computer, don't turn on the computer. Sometimes you're travelling with the same item that might have been in the bottom of your bag for the last six months and all of a sudden it becomes an issue.

    From a consumer's perspective, that makes me a little concerned. Why do they keep changing this? I went to the airport over here, and they weren't concerned about it, but now they are. Is it really a concern? How good is this?

    So I think consistency is a big issue. And they'll get there. I would like to see them get there a little faster, that's all.

  (1230)  

    Mr. Roger Gallaway: That's all I have.

    The Vice-Chair (Mr. Marcel Proulx): Mr. Smith, did you want to comment on this?

    Mr. Daryl Smith: I had to turn my cellphone off and on to get in here today, so apparently that's still around. They didn't trust me.

    Mr. Joseph Randell: Today's security clearance here was reminiscent of the way it was in airports five or six months ago.

    Mr. Daryl Smith: The consistency issue is in fact a real situation. But it's interesting that after I met with the finance committee a month ago to give my presentation, I was asked to talk on one of our popular radio shows in Vancouver, the Rafe Mair show--some of you may know of him--and we had a lot of phone-ins. I was sitting there thinking to myself that this could be a two-edged sword, because surely somebody's going to phone up and say “Damn it, I don't care how much it costs, I want security”. And that is not what happened. All the call-ins we had said we like the security idea, but we don't like how much it's costing and the hassle it's creating.

    So people do like security. I think we all agree that we don't dislike security. We just have to get it into a context we can live with.

[Translation]

    The Vice-Chair (Mr. Marcel Proulx): Ms. Desjarlais.

[English]

    Mrs. Bev Desjarlais: I want to follow up on the percentage of distance. Quite frankly, I think it's very self-serving of someone flying a short-haul flight to suggest that we do it on percentage of distance or on percentage of ticket, because I can fly to Las Vegas for $300 and I can fly Thompson to Ottawa for $3,000. Where's the greater security risk?

    Mr. Daryl Smith: Thompson, obviously. I don't know.

    Mrs. Bev Desjarlais: It's just not a good argument to base it on those reasonings. It just doesn't cut it as far as I'm concerned.

    If you're basing it on the actual security cost at a specific airport, quite frankly I think we all recognize it's costing a larger amount for security at Toronto, for security in Vancouver. We don't have the same type of equipment in Thompson or even--maybe we do in Winnipeg now, I don't know--in the smaller airports. So those types of costs shouldn't be there. There has to be some real honest-to-goodness way of dealing with it.

    Quite frankly, I don't think it would be an issue if whatever it's costing at that airport for that airline is charged the way it was before, to the air carrier per passenger--whatever the airport authority has to charge from their security side of it. Then as far as any other security, it comes out of general revenue. That is the only way to make it fair for every single person in this country or any air passenger flying, because we're not talking about security just for the airport but also for the entire nation. And that's the only sure way.

    Mr. Daryl Smith: That's an excellent point, and it was made quite well at the annual general meeting of the British Columbia Aviation Council. An operator talked there about this same thing, and he asked, who benefits from security? A lot of thought went into it, and the panel finally came back and said the airline passenger benefits. He said “No, no, no. What about the 3,000 people who died in the World Trade Center? They would have benefited from better security. Everybody benefits, not just airline passengers.” The people who have the plane landing on them, or whatever else happens to them, are benefiting too. It's a national problem--an international problem--not an airline problem.

    Mrs. Bev Desjarlais: May I ask another question, Mr. Chair?

    The Vice-Chair (Mr. Marcel Proulx): Absolutely.

    Mrs. Bev Desjarlais: I'm going to touch on it because it comes from both sides with regard to Air Canada's deal with the Province of Quebec.

    I certainly think it is an issue for the people of Quebec if they want competition, but with all due respect to us as a transport committee, we use BTI Travel in the House of Commons because they give us a better rate. And you do it. It's there, though, because we get a better rate. The House of Commons has an agreement in place to use BTI.

  (1235)  

    The Vice-Chair (Mr. Marcel Proulx): That's on tender.

    Mrs. Bev Desjarlais: But there's more to it when you put something in place. It's availability of service in the position. Talking about this air carrier, if you're going to risk losing both air carriers because business isn't good for either, you're going to make sure that you maintain one.

    So as critical as I might be about there not being a competitive edge for the Province of Quebec, I can understand them wanting to make sure to at least keep one carrier, rather than lose everything, because that happens too.

    I think it's more of an industry side of things rather than a transportation side of things.

    The Vice-Chair (Mr. Marcel Proulx): Don't you think there should have been a tender--a bid--going on?

    Mrs. Bev Desjarlais: No, I think it's an issue for the people of Quebec.

    The Vice-Chair (Mr. Marcel Proulx): That's why it was Mr. Harvey asking the question. He is from Quebec.

    Mrs. Bev Desjarlais: No, it's for the transportation committee.

    The Vice-Chair (Mr. Marcel Proulx): Oh!

    Mr. Mark Hill: My only comment is if every province went ahead and did those kinds of deals, you wouldn't have any competition in the country.

    The Vice-Chair (Mr. Marcel Proulx): Mr. Smith.

    Mr. Daryl Smith: I don't know the details of that, but it seems to me that when that deal was struck, Air Canada was very likely the most viable solution to carry on. They probably said “Look, we're not going to carry on here unless we have some assurance of business”.

    I've been in this industry for 38 years, and my experience has been that the minute you get a little comfortable with a deal with anybody, or you get a little, shall we say, fat with your fares, you get knocked off by somebody else.

    But for somebody else to come along--and I think this might have happened in this case--after the fact and say “Gee, I'm a new guy on the block here. How come I can't have a piece of that pie?”.... Lord help me for defending Air Canada, but they had probably been there an awful lot longer, and had paid the price to get those customers. It's a provincial problem.

    The Vice-Chair (Mr. Marcel Proulx): Mr. Randell.

    Mr. Joseph Randell: I'd like to comment on that as well, Mr. Chair.

    What doesn't exist in this country, but does exist in the United States, is an essential air services program. In the U.S. it's not administered by the states; it's administered by the federal government.

    A number of communities have lost services--and potentially others--and there is no program in this country designated as an essential air services program, whereby services are deemed necessary at certain regional airports, and there is a tendered process to provide them. We have nothing of that nature in this country.

    Years ago, we used to significantly subsidize airlines like Regional Airlines, Eastern Provincial Airway, Transair, etc., to serve these communities. Significant subsidies were paid out--not under a public tender process--to sustain services at a lot of these airports. We have no support provisions for these regional airports whatsoever, and all the money in our system is being taken out and put in the general coffers of government.

    Are we surprised that we have a crisis in service at these airports in this country? We should not be surprised by that.

    Mr. James Moore: Are you asking to be regulated again?

    Mr. Joseph Randell: No, but we are not the department of economic development. That is not our role.

    The Vice-Chair (Mr. Marcel Proulx): On Mr. Harvey's question, I didn't hear him accuse anybody; I heard him ask questions because he was trying to find out what it was.

    Are there any other questions or comments?

    Gentlemen, thank you very much for appearing in front of the committee this morning. I'm sure we'll have occasion to talk again.

    The meeting is adjourned.